Rabobank rate riggers see bigger crooks than themselves

Internal Rabobank Groep e-mails cited in the U.S. Justice Department’s case against the bank show a culture where fixing benchmark interest rates had become an easygoing routine, one in which employees joked about rate rigging while telling each other they weren’t really that bad.

Exchanges among traders, rate submitters and a money manager in London were laced with jokes and requests to raise or lower rates depending upon the traders’ positions, according to a statement of facts filed yesterday in federal court in Hartford, Connecticut, as part of a deferred prosecution deal reached with Rabobank.

“Don’t worry mate -- there’s bigger crooks in the market than us guys!” the Rabobank yen Libor submitter, identified as Submitter-4 in the filing, said in a Sept. 21, 2007, e-mail, after agreeing to increase its submission to the one-month yen rate by seven basis points from the previous day. Another mid-level manager joked to a colleague seeking help rigging rates: “I am fast turning into your Libor bitch!!!”

Rabobank, the co-operative formed in 1898 to lend to Dutch farmers, was fined 774 million euros ($1.1 billion) for its involvement in rigging benchmark interest rates, the second- largest in the global investigation.

Artificially Low

Manipulation of Libor can harm consumers, counterparties and financial markets because mortgages, student loans, derivatives and other financial products rely on it as a reference rate, the Justice Department has said.

U.S. attorneys general are reviewing whether state and local governments lost billions of dollars on interest-rate swaps because the manipulation kept the benchmark artificially low. Those swaps are used to hedge interest-rate risk, with governments paying a fixed rate in exchange for variable payments based on Libor.

Investments in floating-rate securities tied to Libor would also have paid less in interest if the rate was suppressed. Local authorities, banks and financial institutions, pension funds and other investors may be affected. More than $300 trillion of loans, financial products and contracts are linked to Libor.

Rabobank admitted that for at least five years beginning in 2005, benchmark submitters in London and Utrecht, Netherlands, would routinely take requests from traders seeking to fix the rate of Euribor and Libor for the U.S. dollar, yen and pound sterling, according to the statement of facts.

Mid-Level Managers

Mid-level managers at the bank, such as Rabobank’s global head of liquidity and finance in London, were aware of and participated in the internal manipulation of Libor submissions, according to the statement of facts.

“We were obviously struck by the extent of the misconduct,” Mythili Raman, acting assistant attorney general of the Justice Department’s criminal division, said in an interview.

She said the investigation found both internal and external agreements to manipulate rates and that the rate setter allowed swaps traders to have significant influence over the Libor setting process.

“What we’ve found across a number of our investigations whether it be in this case or others is that there is misconduct that banks need to be paying more attention to,” Raman said. “They should be paying attention to the fact that we’re paying attention and there’s more to come.”